Howey Test

The ‘Howey Test’ refers to the US Supreme Court’s recognized precedent for categorizing certain transactions as investment contracts. Token offerings that pass the Howey Test are considered securities and subject to special regulation. A token sale passes the Howey Test if three conditions are true: 1. the sale is an investment of money, 2. there is an expectation of profits derived predominately from the efforts of others, and 3. the investment of money is in a common enterprise.